Andora Andrei

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OPEC cuts, weak freight rates help traders profit on Asia crude routes

OPEC cuts, weak freight rates help traders profit on Asia crude routes

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Oil traders from around the world, including the United States, Britain and Brazil, have tripled their sales to Asia as they take advantage of an emerging supply gap following OPEC-led production cuts announced late last year.

Around 30 supertankers have this month made long-haul trips to ship crude oil from the Americas, the North Sea and the Mediterranean to refineries across Asia, the world's biggest and fastest growing consumer, data extracted from Thomson Reuters Oil Research and Forecasts shows.

The unusual movements follow the decision late last year by the Organization of the Petroleum Exporting Countries (OPEC) and other producers including Russia to cut production by almost 1.8 million barrels per day (bpd) during the first half of this year in a bid to rein in global oversupply and prop up prices.

Companies most involved in the long-haul deals include major oil producers such as BP (BP.L) and Royal Dutch Shell (RDSa.L), private commodity traders Trafigura, Vitol and Mercuria, and Chinese refiner Unipec (600028.SS), trading sources say. Energy and mining giant Glencore (GLEN.L), Azerbaijan's state-oil firm Socar and Brazil's Petrobras (PETR4.SA) have also been involved.

Taking advantage of relatively low freight costs and regional crude oil price differentials - known as arbitrage, or arb - traders can profit from supply shortages in one region and oversupply in another.

West Texas Intermediate (WTI) crude futures CLc1, for example, currently trade at around $54.50 per barrel, while international benchmark Brent crude LCOc1 costs $56.90 - a Brent premium over WTI of $2.40 a barrel, compared with near parity in late November, just before OPEC announced its cuts.

"The OPEC cuts have ... led to an open arb for long-haul cargoes, leading to a rise in long-haul crude imports (which) make up for the decline in OPEC (supplies)," said Tushar Bansal, director of Ivy Global Energy, a Singapore-based consultancy.

The cuts are an OPEC policy reversal after two years of pumping out oil and keeping prices low as the cartel sought to squeeze rival exporters.

"OPEC production cuts... created distortions in the Asian crude market, changing global trade patterns," BMI Research said in a note to clients.

OPEC CEDES MARKET SHARE

Helping fill the OPEC gap, crude shipments to Asia from the United States, Britain, Brazil, and even war-torn Libya jumped to over 35 million barrels in February, or 1.26 million bpd, from 10.4 million barrels in October, or 336,000 bpd, the data shows.

For OPEC, which typically meets around 70 percent of Asia's oil demand, that means a 5 percent loss of market share since October.

"Under current oil market conditions, OPEC risks losing market share with further production cuts," said Carole Nakhle, director of advisory firm Crystol Energy in London.

Although OPEC's relationship with customers in Asia tends to be good, refiners in North Asia's consumer hubs of Japan, China, and South Korea say they will readily turn to other suppliers in order to meet their needs.

Loading schedules show U.S. crude exports to Asia increased to more than 3.5 million barrels this month - including a first U.S. oil cargo delivery to India - from below 1 million in October. UK shipments have jumped to more than 10.5 million barrels from just 1.6 million.

Shipments to Asia from Brazil have hit a record 16.7 million barrels in February, up from 6.9 million in October, and Libya, an OPEC-member exempted from the cuts, doubled its Asia shipments to 2 million barrels last month.

Shipping schedules show the trend continuing into March.

BMI said the OPEC cuts, especially of medium and sour crude grades, were "providing opportunities for (similar)... Mediterranean crudes to flow into the Asian market," which include Libyan oil.

WILL THE ARB LAST?

One of the first major long-haul shipments to Asia in this round of arbitrage trading was by BP, which late last year used more than half a dozen tankers to ship almost 3 million barrels of U.S. crude as far as 30,000 km (18,641 miles) to Australia, Thailand and Japan.
In similar deals, Unipec and Trafigura have shipped U.S. oil from the Gulf of Mexico to China. Shippers of North Sea crude to Asia have included Vitol, Mercuria, Trafigura, Glencore, Shell, Unipec and Socar. The main exporter from Brazil has been state-owned Petrobras, shipping data shows, with traders saying its crude has replaced oil from OPEC-member Angola.

Oystein Berentsen, managing director for crude oil trader Strong Petroleum in Singapore, said arbitrage for North Sea and U.S. oil to Asia has been possible due to the OPEC-led cuts, and these routes "may continue depending on freight and price spreads."

Benchmark Middle-East to Japan freight rates for supertankers (VLCC) .BAWC are at 71 points on a so-called Worldscale rate based on 100, compared to a long-term average rate of around 76 over the last 10 years.

"The whole reason arb opportunities are there is because of weak freight," said Matt Stanley, a fuel broker at Freight Investor Services in Dubai.

It's not clear how long this arb window will remain open.

Strong Petroleum's Berentsen said that despite the OPEC cuts "there is still oversupply, but the market will probably balance in the third quarter. Then we'll see if the arb still works."
 

Andora Andrei

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London Metal Exchange cuts deal with banks to propel gold futures

London Metal Exchange cuts deal with banks to propel gold futures

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The London Metal Exchange has reached a 50:50 revenue-sharing deal with a company founded by a group of banks to promote trade in its new gold futures contracts, sources said, aiming to overcome market scepticism surrounding their launch in June.

Usually, exchanges merely consult potential users about their needs when planning new financial and commodity contracts. But in this case, the LME has opted for a radical departure from normal practice as it tries to grab a piece of London's $5 trillion-a-year gold market.

Sources close to the matter told Reuters that the five banks and a proprietary trader which are shareholders in the new company have undertaken to bring guaranteed minimum levels of trade in the gold futures.

Should they meet these levels, the project partners will receive a half share of the revenue under an incentive scheme designed to ensure the contracts have turnover, viability and credibility from the outset.

"We're all committed to market-making and will at least bring our own trading book," said a source at one of the banks involved in the project. "It'll come with some built-in volume."

The sources gave few details of the arrangement. However, one at a different bank backing the contracts said: "Do we have incentives for it to work? Yes."

The LME, which is owned by Hong Kong Exchanges and Clearing Ltd, hopes the arrangement will give its contracts enough business to take off from June 5 despite doubts among many brokers and gold producers.

It also wants to shoulder aside U.S. exchanges CME Group and ICE which launched London gold contracts last month, although they have yet to attract any business.

The LME's partners from the banking sector are Goldman Sachs, ICBC Standard Bank, Morgan Stanley, Natixis and Societe Generale. They have founded a company called EOS Precious Metals along with commodity trader OSTC and The World Gold Council, an industry market development body.

Together they have invested several million dollars in designing and building the spot, futures and options contracts and formed EOS to receive their share of revenues.

The LME and EOS have also offered the deal to all other market participants. However, London's two largest gold traders - HSBC and JPMorgan - are missing from the consortium, as is ScotiaMocatta, another big bullion dealer.

Robin Martin, head of market infrastructure at the World Gold Council, said EOS shareholders would not get any preferential treatment in terms of fees paid to use the new LME contracts.

However, he told Reuters: "There is a commercial arrangement in place which reflects the fact that the EOS shareholders have co-funded the build-out of this service."

The shareholders had invested in the project in terms of cash and time, "developing the product model and consulting with the LME over a drawn out multi-month process", he said, without detailing the financial or trading arrangements.

The LME, Morgan Stanley and Societe Generale declined to comment on the deal with EOS. Natixis, Goldman Sachs and OSTC did not immediately respond to requests to comment.

REVENUES FOR LIQUIDITY

At the moment, London's gold trade is dominated by over-the-counter (OTC) business conducted bilaterally among networks of brokers, producers and consumers. Gold futures trading takes place chiefly on the CME's New York market and the Tokyo Commodity Exchange.

However, the LME and its rivals see an opportunity as regulation of the market tightens, hoping this will force the trade onto transparent, centrally-cleared exchanges.

Bigger banks, which rely on their wide range of business relationships, stand to lose market share from such a shift because exchange trading would make it easier for smaller players to compete.

Gold dealers keep their volumes secret and no precise figures are available, but analysts and traders estimate the EOS shareholders may control up to 50 percent of OTC bullion trading in London.

Under the deal, the EOS partners will pay an annual fee to the LME, said a source at one of the banks involved. This represents an advance payment for clearing services, against which fees will be offset as the trades are transacted.

They will also promise to provide minimum liquidity levels, and to buy and sell gold and silver to facilitate trading.

"There is a share agreement taking into account how much volume you are contributing to the platform. If our volume explodes, we make money on top of that as a shareholder," said a source at one of the banks.

Societe Generale, Goldman Sachs, ICBC Standard and Morgan Stanley have made larger commitments and investments than other, smaller EOS shareholders, sources said.

Backers of the scheme note that clearing gold business through an exchange will have regulatory advantages as it means banks would have to hold smaller capital buffers.
"For every open position that a bank has with its clients it has to set aside capital. If they net and clear it on the LME they have no exposure and no capital requirements," said the head of a brokerage in London.

Tighter capital requirement regulations are due to be introduced next year across the European Union, although arrangements for when Britain leaves the bloc have yet to be made.

Further pressure for change is coming from the United States. London's gold trade - along with the rest of the City of London - has come under greater scrutiny since a scandal over the setting of Libor benchmark interest rates, and U.S. lawsuits alleging rigging are pending against banks that set bullion prices.

The partners hope the LME contracts will eventually attract most of the hedging business between banks and brokers, which accounts for up to 90 percent of the more than $20 billion of gold traded in London each day.

Not everyone is convinced; brokers and gold producers fear the futures will be too inflexible and costly. Sources at two banks outside EOS said they would wait to see whether the contracts gain momentum before deciding whether to use them.

"If the LME can provide liquidity, then that's where people will go and so will we," said a source at one gold producer.

The LME plans to offer a much wider range of contracts than its competitors do at the moment in London.

The CME is offering gold and silver contracts to connect London with its established New York market. ICE runs the London gold auction, which sets a global benchmark price for bullion, and has a daily gold contract that will enable participants, which include most of London's largest bullion banks, to clear their trades.

Neither set of contracts has traded since launching in January. The CME said it was working with major banks to synchronize their systems to start trading. ICE said it expected volumes to rise after it begins offering clearing in March.

In the meantime, the EOS partners hope the shareholdings will appreciate over time. "After a few years, possibly, we get a nice windfall profit, but it's not a project to make profit in the short term," said a source at one of the partners.
 

Andora Andrei

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UPDATE 2-UK Stocks-Factors to watch on Feb. 23

UPDATE 2-UK Stocks-Factors to watch on Feb. 23

Feb 23 Britain's FTSE 100 index is seen opening 4 points higher, or up 0.05 percent on Thursday, according to Financial spreadbetters, with futures up 0.06 percent ahead of the cash market open.

* The blue-chip FTSE 100 index ended up 0.4 percent at 7302.25 points, as Lloyds reported its highest annual profit in a decade and Unilever promised a far-reaching review.

* BARCLAYS: Barclays reported a surprise increase in its core capital ratio on Thursday, as the key measure of financial strength rose to 12.4 percent against analysts' expectations it would only climb to 11.8 percent.

* BARCLAYS AFRICA: Barclays PLC has agreed to pay Barclays Africa 12.8 billion rand ($988 million) to fund investments required to separate it from its African unit, Barclays Africa said on Thursday.

* LLOYDS: The British government said on Thursday it has further reduced its stake in Lloyds Banking Group, a day after the bank posted its highest profit since before the 2007-2009 global financial crisis.

* GLENCORE: Miner and trader Glencore reported an 18 percent increase in core profits for 2016 on Thursday and said the company had never been so well positioned, although an ill-timed coal hedge had eaten into energy profits.

* BAE: Britain's BAE Systems said it expected increased defence budgets to boost its earnings by 5-10 percent this year after it met market expectations with a 7 percent rise in 2016.

* BAT: British American Tobacco, the second-largest international tobacco company, reported a slight increase in full-year cigarette and tobacco sales volumes on Thursday.

* RELX: European information and analytics provider Relx raised its dividend by a more-than-expected 21 percent on Thursday after meeting 2016 results forecasts.

* CENTRICA: Centrica, Britain's largest energy supplier, reported a 4 percent rise in annual adjusted profit on Thursday, slightly ahead of analyst estimates, and said debt levels could be low enough this year to allow an increase in its dividend.

* RSA: Insurer RSA posted a 25 percent rise in 2016 operating profit to an above-forecast 655 million pounds ($814.49 million) due to strong performance in most of its core businesses, and raised its target for return on equity.

* INTU PROPERTIES: British shopping centre landlord Intu Properties posted an unchanged full-year NAV from last year, as values and demand for Britain's top malls stabilised against a weakening broader market following the country's vote to leave the EU.

* MONDI: South African paper and packaging company Mondi's 2016 underlying profit rose, helped by good performance in all its businesses despite pricing pressure in a number of key paper grades.

* RATHBONE: British wealth manager Rathbone Brothers said funds under management rose 17.1 percent in 2016 to 34.2 billion pounds ($42.55 billion), boosted by gains in the British stock market in the second half of the year.

* HOWDEN JOINERY: Modular kitchen maker Howden Joinery Group Plc reported a slower full-year revenue growth for its UK depots, dragged down by weaker consumer confidence following Britain's vote to leave the European Union.

* PLAYTECH: Gambling technology company Playtech Plc said full-year revenue rose 12.5 percent, aided by strong performance in its gaming division.

* BANK OF ENGLAND: Bank of England Deputy Governor Jon Cunliffe warned on Wednesday that requiring financial instruments to be cleared in a country that uses the currency in which they are denominated would bump up costs and splinter markets.

* BANK OF ENGLAND/INSURERS: EU capital rules for insurers need some tweaks but are not a deterrent to investment in infrastructure as some insurers' claim, the Bank of England said on Wednesday.

* PURPLEBRICKS: British online real estate agent Purplebricks Group Plc said it intended to raise funds through a share issue to expand into the United States.
AO WORLD: AO World, the British online electricals retailer, said on Wednesday its founder John Roberts had stepped down as chief executive but would remain on the board in a new executive role.

* OIL: U.S. oil futures rose nearly 1 percent on Thursday after data released by an industry group showed a surprise decline in U.S. crude stocks as imports fell, lending support to the view that a global glut is ending.

* BHP: The first attempt at an acquisition by Australia's South32 S32.AX following its spinoff from BHP Billiton, has raised competition concerns over control of the local coking coal market.

* EX-DIVS: Carnival, Diageo, Easyjet GlaxoSmithKline , Rio Tinto and Lancashire to go ex-dividend. According to Reuters calculations at current market prices, the effect of the resulting adjustment to prices by market-makers would take 12.3 points off the index.

* For more on the factors affecting European stocks, please click on: cpurl://apps.cp./cms/?pageId=livemarkets

TODAY'S UK PAPERS

> Financial Times
 

Andora Andrei

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Barclays gets surprise core capital boost as profit climbs

Barclays gets surprise core capital boost as profit climbs

LONDON, Feb 23 Barclays reported a surprise increase in its core capital ratio on Thursday, as the bank took advantage of its rising profits to put money aside for expected demands on its cash from legal issues and worsening global market conditions.

The bank's capital ratio, a key measure of financial strength, rose to 12.4 percent against analysts' expectations it would only reach 11.8 percent.

Barclays said the capital boost came from increased profits as the group nears the end of a major restructuring.

"...we are well positioned to absorb headwinds over the next few years. Certain legacy conduct issues remain and we intend to make further progress on them," Chief Executive Jes Staley said in the bank's statement.

Barclays faces a suit by the U.S. Department of Justice on civil charges of fraud in the sale of mortgage-backed securities during the run-up to the 2008-09 financial crisis.

Barclays is so far alone among major banks in choosing to contest its case where rivals have settled.

Barclays reported an adjusted full-year pre-tax profit of 3.2 billion pounds ($3.98 billion), compared with 1.14 billion a year earlier. That was below the average forecast of 3.97 billion from analysts' estimates compiled by the bank.
The bank said it would close its non-core division that holds its assets earmarked for sale in June, six months earlier than expected.

The bank also said it had reached an agreement with its African division on the terms of their separation that will see it pay Barclays Africa 12.8 billion rand ($988 million) to fund investments required to separate the two.

Staley said the result showed progress on a plan announced last March under which Barclays will shed unwanted assets including most of its stake Barclays Africa in favour of a 'transatlantic' strategy focused on the United
 

Andora Andrei

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EUR: Staying Tactically Short For Next 2 Month Targeting A Retest Of 1.0340

EUR: Staying Tactically Short For Next 2 Month Targeting A Retest Of 1.0340

EUR/USD is getting used to a lower range, around 1.05. Can it fall even further?
In Europe, the focus remains on the French elections. Indeed, the EUR is largely ignoring the pickup in Feb PMIs given the news that Le Pen continues to inch higher in the polls. This weekend saw an Ipsos poll show Le Pen with 26% support versus 19% for Macron and 18.5% for Fillon. Other polls have shown a bit more dispersion, leading to the increased uncertainty about upcoming elections. We also note that the recent news of a political alliance on the political left clouds the outlook for the election. The rub here is that a second round that features a group left candidates could reduce turnout, helping to favor Le Pen. The French-German 2y spread has surged since the start of the year, shifting the drivers for the EUR.

The combination of rising political risks and lower real rates creates a toxic mix for the EUR.
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Europe's recovery still fragile: ECB's Praet

Europe's recovery still fragile: ECB's Praet

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Europe's economic recovery remains fragile, leaving little room for complacency, with risks exacerbated by political uncertainty before key elections, European Central Bank chief economist Peter Praet said on Thursday.

Although recent indicators from PMI figures to confidence have surprised on the upside, Praet warned that the recovery was dependent on substantial support from the ECB.

With growth picking up pace, conservative policymakers have argued for some form of monetary tightening, a call so far resisted by the Governing Council.

"Despite the resilient recovery in the euro area, and strong indicators of confidence across all sectors, measures of political and policy uncertainty have been rising recently, although asset markets are not significantly pricing in tail risks," Praet said in London.

The recent bouts of uncertainty are a source of concern, and represent a downside risk to the economic outlook," Praet told a conference.
 

Andora Andrei

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UK inflation expectations steady for year ahead, rise further out

UK inflation expectations steady for year ahead, rise further out

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The British public's expectations for inflation over the coming year held at their highest level in more than three years last month but rose for inflation further ahead, a monthly survey by bank Citi and polling firm YouGov showed on Thursday.

Short-run inflation expectations stood at 2.6 percent unchanged from January, the highest since December 2013 and above their long-run average of 2.4 percent.

The Bank of England has forecast that inflation - which is rising fast after last year's Brexit vote pushed down the value of the pound - will peak at just over 2.7 percent in mid 2018.

Citi said longer-run inflation expectations for the next five to 10 years rose to 3.2 percent from 3.0 percent in January, the highest since January 2014 but not above the series average since it was launched in 2005.

"We cannot rule out second-round effects when households and businesses negotiate wages and rents, perpetuating higher inflation beyond the current spike," Citi economists Christian Schulz and Ann O'Kelly said.

"If the economy does not cool over the coming quarters, the BoE's Monetary Policy Committee may come under pressure to raise Bank Rate from its current low of 0.25 percent, despite Brexit uncertainty."
 

Andora Andrei

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FOMC Minutes Show Little Urgency for a March Hike

FOMC Minutes Show Little Urgency for a March Hike

The US dollar slid yesterday after the minutes from the latest FOMC policy meeting disappointed those who were looking for hints that a March hike is underway. Although Fed officials expressed confidence that a rate increase might be appropriate "fairly soon" if incoming information on the labor market and inflation was in line with or stronger than their current expectations, this was tempered by other comments that showed little concern about near-term inflation risks. Many Fed voters saw only a modest risk of inflation pressures increasing significantly and judged that the Fed would have "ample time" to respond if inflation emerged. On top of that, several members continued to be concerned about the downside risks to economic activity associated with further appreciation of the dollar. With regards to Trump's fiscal promises, policymakers noted that the uncertainty surrounding the subject should not deter the Committee form taking further steps in removing policy accommodation. Nevertheless, some were mindful that adjusting policy in anticipation to these policies might have different consequences than currently anticipated. All these points combined passed a different message to market participants than the one they got from Yellen's testimony last week. As such, the dollar weakened and the probability for a March action has ticked down. According to our model, which is based on the yields of the Fed funds futures, that probability is now 26% versus 28% yesterday.
Due to the fact that the meeting statement was relatively balanced, we did not expect this level of hesitation in these minutes. Nonetheless, the outcome confirms our assessment that the Committee has turned more dovish this year through the rotation of voting rights. As such, we stick to our guns that a March hike is unlikely and that the next increase in interest rates will probably take place in June. We would like to see some clarity around fiscal reform, some acceleration in wage growth, as well as an uptick in the core PCE price index rate, before we reconsider this view.
USD/JPY slid as soon as the minutes were out to challenge once again the 113.00 (S1) support territory. If USD-bears remain in charge today and manage to break that barrier, then we expect them to aim for our next support of 112.60 (S2), defined by the low of the 17th of February. However, although there is the possibility for further declines, the short-term path of the pair remains sideways. The rate has been oscillating between 111.60 and 115.50 since the 11th of January. We would like to see an escape from that range before we assume a forthcoming trending direction.
French politics still on the spotlight
Yesterday, Veteran French centrist Francois Bayrou announced that he will not run for President and offered his support to the independent candidate Emmanuel Macron. According to the polls, Bayrou's support was only 5%, but his withdrawal gives Macron a significant boost towards victory. EUR/USD spiked higher on the news, after it hit support near the 1.0500 (S1) territory, got another boost later in the day from the Fed minutes, and stopped near the 1.0570 (R1) line. Anything that reduces, or at least not increases, the possibility of Le Pen becoming President is seen as positive for the common currency. The combination of that and the disappointment from the Fed minutes may keep EUR/USD supported for a while. A break above 1.0570 (R1) is possible to challenge our next resistance of 1.0600 (R2). Nevertheless, we don't expect any further recovery to develop into a strong bull run, given that we still have a long way to go before any election outcome is certain. A fresh poll showed that Marine Le Pen has increased her lead in the first round, which proves that Europe's political risks have nothing but diminished. However, the common currency did not react to that poll, as the far right leader is still expected to lose by a large margin in the runoff. With this uncertainty still in place, we expect euro-bears to take charge again soon and drive the battle in EUR/USD back down for another test near 1.0500 (S1). However, we recall that one of our favorite proxies to play further weakness in the common currency is EUR/JPY, given that the yen may enjoy some safe haven flows in case uncertainty mounts further.
Overnight, Australia's capital expenditure index for Q4 tumbled 2.1% qoq, much more than the expected 1.0% qoq slide. The Aussie slid on the release, but that doesn't change our outlook with regards to the currency. The RBA's intention to remain on hold in the foreseeable future combined with the surge in iron ore in past months are likely to keep the AUD supported. As we noted yesterday, we believe that EUR/AUD is one of the better proxies for exploiting any further Aussie gains, considering that the political risks in Eurozone could keep the euro on the back foot in coming months.
As for today's events
During the European day, we have a relatively light calendar in terms of economic releases. From Germany, we get the final GDP figures for Q4 as well as the Gfk consumer sentiment index for March, though neither of these indicators is usually a major market mover.
In Norway, the oil investment expectations survey for Q1 is due to be released, though no forecast is available for the figure. Considering the nation's heavy reliance on oil exports, this number will be closely watched. We see the case for oil investment expectations to have risen from the previous quarter, given that oil prices have remained elevated in recent months, following the OPEC consensus. Something like that may bring NOK under renewed buying interest.
From the US, we get initial jobless claims for the week ended 17th of February. The forecast is for the figure to have ticked up, something that would bring the 4-week average down.
We have two speakers scheduled on Thursday: ECB Executive Board member Peter Praet and Atlanta Fed President Dennis Lockhart.
 

Andora Andrei

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Gold goes up in Asia notwithstanding Fed minutes showing rate lift in play

Gold goes up in Asia notwithstanding Fed minutes showing rate lift in play

On Thursday, gold managed to gain in Asia, notwithstanding a definite signal from Fed minutes that a rate lift sooner rather than later is on the cards.

In New York, April delivery gold futures ascended 0.32%, being worth $1,237.15, while silver futures leapt 0.18%, trading at $17.983 a troy ounce. Besides this, copper dropped 0.26%, showing $2.729 a pound.

Overnight, gold futures edged down as the evergreen buck gained momentum, as market participants noted the minutes from the Fed Open Market Committee, which suggested a rate lift soon enough.

The gathering turned to be the first since Trump took office. FOMC members reported higher levels of confidence in the business community. Moreover, they predicted that the expected surge in economic growth related to Trump's policy proposals could stimulate the Fed to act immediately.

Gold happens to be sensitive to moves in American interest rates, which raises the overall cost of holding non-yielding assets such as bullion, simultaneously driving the greenback in which it’s priced.
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Crude leaps after report shows dip in stockpiles

Crude leaps after report shows dip in stockpiles

On Thursday, crude futures added almost 1% after data issued by an industry group demonstrated a surprise dip in American crude stocks as imports sagged, lending support to the view that a global glut is already coming to its end.

The US West Texas Intermediate April delivery crude futures CLc1 gained 0.9%, hitting $54.07 a barrel.

Brent crude futures LCOc1 tacked on 0.8%, being worth $56.32, though both benchmarks were still keeping to recent tight ranges.

Crude inventories sank by 884,000 barrels by February 17 to 512.7 million, compared with experts' hopes for a surge of 3.5 million barrels, as the American Petroleum Institute informed on Wednesday.

The data greatly contributed to optimism earlier in the week when the Organization of the Petroleum Exporting Countries told that a deal with other crude producers including Russia to tame output was demonstrating a relatively high level of compliance.

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Aussie goes down as private capital expenditure tumbles

Aussie goes down as private capital expenditure tumbles

On Thursday, the Australian dollar went down in Asia, as private spending for capital items dived more than expected, thus raising some speculation that the economy might require more monetary help going forward.

The US dollar index, normally assessing the greenback’s strength against a trade-weighted basket of six crucial currencies, inched up 0.05%, hitting 101.36.

The currency pair AUD/USD dipped 0.36%, trading at 0.7673, while USD/JPY decreased 0.04% getting to 113.26.

In Australia, during the fourth quarter private new capital expenditure edged down 2.1%, which is sharper than the 0.5% drop expected.

Overnight, the evergreen buck gained moderately against key currencies, as the Federal Reserve Open Committee gathering minutes were issued.

However, notwithstanding a stronger American existing home sales print for January of 5.69 million compared to hopes for 5.51 million, the dollar index failed to contribute to revenues in the early morning American session.
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Asian shares dip

Asian shares dip

On Thursday, Asian stocks eased from a 19-month peak, while the greenback made an uneven recovery from losses suffered after Fed minutes indicated rather a cautious approach to lifting American interest rates.

MSCI's broadest index of Asia-Pacific shares outside Japan declined nearly 0.1%, having leapt to its highest value on Wednesday since July 2015.

Japan's Nikkei declined 0.35%, Australian stocks retreated 0.2%.

South Korean stocks were flat after the major bank kept interest rates intact at 1.25%, as expected for an eighth straight month.

Overnight on Wall Street, the Dow Jones Industrial Average rose nearly 0.2%, which is its ninth straight record-close.

The evergreen buck soared as market participants parsed the Fed's January gathering minutes, which told that it might be appropriate to increase rates again if jobs and inflation data are in line with expectations.

The dollar index, tracking the greenback against a basket of trade-weighted counterparts, tacked on 0.15%, getting to 101.37.
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Australian shares decrease at close of trade

Australian shares decrease at close of trade

On Thursday, Australian stocks headed south after the close, as losses in the Metals & Mining, Resources as well as Utilities sectors brought stocks down.

The S&P/ASX 200 edged down 0.35%.

Estia Health Ltd, Invocare Ltd and Crown Ltd managed to become the best performers of the session on the S&P/ASX 200. They grew respectively 13.68%, 8.65% and 8.43%.

As for the worst performance, it was demonstrated by Ardent Leisure Group, Sky Network Television Ltd and Isentia Group Ltd. They tumbled 21.76%, 12.59% and 7.24% respectively.

Descending stocks outperformed soaring ones on the Australia Stock Exchange by 611 to 509, while 314 ended intact.

Stocks in Ardent Leisure Group dipped to 3-years minimums, declining 21.76% and trading at 1.690. Stocks in Sky Network Television Ltd dived to 3-years minimums, decreasing 12.59% and hitting 3.540. Stocks in Isentia Group Ltd edged down to all time minimums, declining 7.24%, reaching 1.665.
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Greenback almost stands still as Fed minutes point to hike quite soon

Greenback almost stands still as Fed minutes point to hike quite soon

On Thursday, the major American currency headed north moderately as the Fed minutes seemed to opt for the dovish side.

The dollar index managed to ascend 0.08%, being worth 101.39 at 02:30 ET. Meanwhile, the common currency was pressured at the $1.05 level.

Many Fed members argued the necessity for a lift quite soon if the American economy keeps apace.

The odds priced in by the financial markets of a March lift eased after the FOMC statement.

The FOMC noted that inflation remains below the 2% objective and it’s going to ascend to that level over the medium term.

Aside from that, the FOMC stressed that current economic conditions justify only gradual interest rate hikes.

The evergreen buck edged down 0.11%, trading at 113.19 yen, following remarks by BoJ chief Haruhiko Kuroda on Wednesday.

Kuroda told that further Japanese monetary easing doesn’t seem to be probable as the Japanese economy recovers.
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Andora Andrei

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China is capable of stabilizing homes prices

China is capable of stabilizing homes prices

China's property prices are going to remain steady during the first quarter, as housing minister Chen Zhenggao informed on Thursday. He added that the Chinese government boasts the capacity as well as adequate methods to stabilize the market.

The Chinese government is already aware of the fact that the property market is facing many issues and contradictions in 2017 and there’re increasing uncertainties. Chen stressed that he’s assured that the positive aspects will outweigh the negative ones and the market will be successfully stabilized.

The vice housing minister also told reporters that preparatory work was carried out for a nationwide property tax, though he didn’t provide further details.

China's home price growth decreased for the fourth straight month in January after the government slapped curbs on the property sector - a number one contributor to the broader economy – for the last year as the concentration of price ascends in the country's most prosperous cities stoked fears of a nasty crash.
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Andora Andrei

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Domestic demand powers German growth in the fourth quarter

Domestic demand powers German growth in the fourth quarter

The German economy managed to quadruple its growth rate to approximately 0.4% during the fourth quarter of the previous year, as higher state spending, ascending private consumption as well as construction more than compensated a drag from net foreign trade, as data disclosed on Thursday.

Confirming a preliminary reading for growth, the Federal Statistics Office told that exports surged by 1.8% on the quarter, while imports added by 3.1%, dropping a hint that net foreign trade subtracted 0.4% from GDP growth.

State spending tacked on 0.8%, contributing 0.2% to growth. The German government is spending billions of euros on accommodating as well as integrating more than one million refugees who have arrived since the beginning of 2015, many from war zones, including Iraq and Syria.

Household spending inched up by 0.3% on the quarter, also adding 0.2% to GDP in the three months through December. Besides this, consumers are benefiting from record-high employment, surging real wages as well as low borrowing costs.
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Andora Andrei

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London Session Forex Recap – Feb. 23, 2017

London Session Forex Recap – Feb. 23, 2017

GFK’s German consumer sentiment: 10.0 vs. 10.1 expected, 10.2 previous
Germany’s final Q4 GDP q/q: unchanged at 0.4% as expected
Germany’s final Q4 GDP y/y: unchanged at 1.7% as expected
French INSEE manufacturing confidence: 107 vs. steady at 106 expected
Italian retail sales m/m: -0.5% vs. 0.2% expected, -0.7% previous
Italian retail sales y/y: -0.2% vs. 0.8% expected, 0.8% previous
U.K. CBI realized sales: 9 vs. 5 expected, -8 previous

Price action was rather choppy during the session, with many pairs milling about in tight ranges. The Greenback did get kicked broadly lower late into the session, though. The safe-haven yen, meanwhile, was well-supported throughout the session.
Major Events/Reports:

Commodities rally, base metals retreat – Commodities staged a broad-based rally during the morning London session. Base metals got left behind (and were even going in the opposite direction), though.

Oil benchmarks led the commodities charge.

U.S. crude oil was up by 1.51% to $54.40 per barrel
Brent crude oil was up by 1.54% to $56.70 per barrel

Precious metals, meanwhile, were also in demand.

Gold was up by 0.76% to $1,242.65 per troy ounce
Silver was up by 0.41% to $18.023 per troy ounce

As for base metals, they felt no love.

Copper was down by 0.70% to $2.714 per pound
Nickel was down by 0.58% to $10,670.00 per dry metric ton

The Greenback’s weakness very likely stoked demand for commodities. And for reference, the U.S. dollar index down by 0.17% to 101.14 for the day. Oil was really surging, though. And that was attributed by market analysts to speculation that the U.S. Energy Information Administration’s (EIA) official oil inventory numbers will print a drop later.

As for the broad-based slide in base metals, that was blamed by market analysts on demand worries from China after Chen Zhenggao, China’s housing minister, said earlier that China has “the ability and methods to stabilize the [property] market.”

Skittish session in Europe – European equity indices were flat but mostly up earlier. However, most European equity indices were printing mild losses by the end of the morning London session.

The pan-European FTSEurofirst 300 was down by 0.06% to 1,471.86
The blue chip Euro Stoxx 50 was down by 0.02% to 3,339.50
Germany’s DAX was was still up by 0.11% to 11,988.00

Market analysts pointed to positive reports for Barclays, which gave banking shares a boost for the early risk appetite. As for the later risk aversion, that was likely due to the slide in base metals, since mining shares were one of the main losers.

There were also reports that mentioned political uncertainty with regard to the French elections. And perhaps political uncertainty may have been a reason for the skittishness as well.

Mnuchin speaks – U.S. Treasury Secretary Steven Mnuchin was interviewed by CNBC earlier, and he said that a tax plan would be presented soon, with a tax overhaul hopefully by August. The said tax plan would involve “significant” tax reform and is “mostly focused on the middle class.” However, Mnuchin also said that it’s “too early” to give details of the tax plan.

Other than that, he also said that a “3% growth is very achievable, could be late 2018 before we see 3% growth.” Overall, nothing really new from what he told the Wall Street Journal yesterday, though.
Major Market Movers:

USD – Greenback pairs were dormant for most of the session. However, signs of Greenback demand began to show when Mnuchin was being interviewed by CNBC. The Greenback later got dumped across the board, though, likely because market players were disappointed that Mnuchin failed to provide any details of Trump’s highly-anticipated tax plans.

GBP/USD was up by 42 pips (+0.35%) to 1.2494, AUD/USD was up by 28 pips (+0.37%) to 0.7722, EUR/USD was up by 15 pips (+0.14%) to 1.0568

JPY – The downbeat vibes very likely fueled demand for the safe-haven yen, since it closed the session on a high note across the board.

USD/JPY was down by 45 pips (-0.40%) to 112.78, EUR/JPY was down by 32 pips (-0.28%) to 119.19, NZD/JPY was down by 23 pips (-0.29%) to 81.44
Watch Out For:

1:30 pm GMT: Canadian quarterly corporate profits (14.0% previous)
1:30 pm GMT: U.S. initial jobless claims (240K expected, 239K previous)
2:00 pm GMT: FHFA U.S. HPI (0.4% expected, 0.5% previous)
4:00 pm GMT: U.S. crude oil inventories (3.4M expected, 9.5M previous)
6:00 pm GMT: Dallas Fed President Robert Kaplan has a speech
10:30 pm GMT: RBA Governor Philip Lowe will testify before the Standing Committee on Economics

See also:
 

Andora Andrei

Active member
The Mnuchin Media Roadshow

The Mnuchin Media Roadshow

The Mnuchin Media Roadshow
It was a flat session overnight for US equities. While US bond markets traded a touch firmer, investors continued to absorb the FOMC minutes. However, there is no smoking gun as the FOMC minutes failed to move the March rate hike needle, but rather, the currency markets were engrossed by US Treasury Secretary Mnuchin, whose comments have left investors dangling about the US administration currency policy as there appears to be a subtle shift in the Trump administration’s rhetoric on USD.
Regardless, his remarks on tax reform and positive US growth outlook failed to persuade equity investors; but one reason the market is reading a great deal into Munchkins views is the proximity of the comments to President Trump’s speech before a joint session of Congress next Tuesday
Currency markets are very much in a state of limbo, struggling to decipher the numerous factors that are moving the dollar markets. If it is not the US bond yield yo-yo, then it’s the EU risk roller coaster or FOMC Flim Flam. We are left deciphering the US administration’s currency policy while grappling with a market that has few, if any convictions. One thing is certain, though, there is no perfect place to hang your hat.
Australian Dollar
The Australian dollar has benefited from the general dollar sag, as investors were disappointed by the latest FOMC minutes.
Iron ore prices toppled some 3% overnight and the base commodity remains in the rarefied air, above the $90.00 per tonne region, but the carry trade appeal remains strong versus the US dollar. European investors continue to find the Aussie parking lot appealing to shelter growing political uncertainty.
RBA’s Governor Lowe offered little opposition to the stronger AUD in this morning’s speech and dealers still view the bar as extremely high for an interest rate cut from the RBA. I suspect the RBA will remain parked in neutral while the US Fiscal and Tax policies unfold and as the Feds move further along the path of interest rate normalisation. Look for more noise surrounding the Fed debate on the balance sheet in upcoming Fed rhetoric and see a greater emphasis on it during upcoming Fed meetings.
The AUD is trading back in the .7700-.7750 death-valley zone, and if recent history tells us anything about AUD trader sentiment, it is going to take some work to breach this zone.
Japanese Yen
USDJPY has moved a fair bit lower, as disappointment that the FOMC minutes did not clearly reprice a March hike has all but escorted the dollar bulls back to the bullpen. What is also becoming very apparent is that political nervousness is weighing on the USDJPY.
Given that price action has been limited to all the moves on Wednesday, I suspect the broader market is still struggling with the bigger picture surrounding the FOMC, US Fiscal policy and the overhang from EU political risks, as divergent views abound.
Asia EM
EM risk got a jump after Mnuchin said that there would be no action on trade with Mexico, which is expected in the short term. Given the far-reaching implications across the region, investors appear less nervous about US trade relations. USD MXN continues to be a fantastic sentiment gauge for how investors perceive US trade policy, as MXN rallied from 20.00 down to 19.62 overnight.
 

Andora Andrei

Active member
Trump's Big Day Out At Capitol Hill: Can He Continue To Charm The Markets?

Trump's Big Day Out At Capitol Hill: Can He Continue To Charm The Markets?

This coming Tuesday 28th February, US President Trump will address Congress for the first time. Usually Presidents do this in January at the State of the Union, however in election years it takes place a month later and although similar in structure it is not a formal State of the Union.
This speech is the most important risk event for financial markets since Trump's shock election win last year heralded a rally in equity markets and fresh record highs for US stocks. It has political and economic ramifications, and it has the potential to drive financial market volatility substantially higher.
The political context:
From a political point of view, the President's speech is a chance to re-set after a series of missteps in his first month of office, including the resignation of his National Security advisor and an unpopular decision to ban immigrants from some Muslim countries. It is also a chance for Trump, who has been busy working unilaterally in his first month in office passing multiple executive orders, to address Congress and outline what he wants done on Capital Hill in the next year.
Compared to Trump's inauguration speech, this address to Congress is more like a Presidential laundry list that puts the meat on the bones of what he wants done in his first few years in office. Some officials with knowledge of the speech suggest that the President will lay out four main policy areas including: tax reform, border security, healthcare and fiscal spending/ infrastructure plans. We would also expect some talk about scrapping the Dodd Frank rule for US banks and rolling back on the current regime of financial market regulation.
Trump's charm offensive to Congress
Presidents need to tread carefully during the State of the Union, as Congress doesn't like to be micromanaged. Thus, Trump has to make his case for his policy plans and convince Congress, including 200 hostile Democrats, that they should put his policies into action and work with him to make them a success. Traditionally, Presidents should use an address to Congress as a charm offensive, which, so far, appears at odds with President Trump's governing style.
The last point on the political front is worth noting. As mentioned above there are still 200 members of Congress from the other side of the aisle, who may use this speech as a chance to goad a President known for his outbursts and thin-skin. They could bring guests from groups that have already been targeted by Trump, including Muslim and illegal immigrants along with members of the trans-gender community. If Trump uses this speech to make cheap digs at his rivals then the overall impact could be negative, especially if he does so at the expense of disclosing much-anticipated details about his economic plans.
The market reaction:
In the lead up to this speech the equity market rally has tapered off slightly, and volatility has ticked up although it remains at low levels. As mentioned above, this is the most important speech of Trump's Presidential career so far, and the market reaction to it will be a key gauge of confidence in the Trump administration.
Does the Bond and FX market see something the equity market is missing?
Interestingly, the FX and bond market have shown more scepticism about the 'Trumpflation' trade compared to the US equity markets. US inflation-adjusted bond yields have fallen consistently in February and are now back at their lowest level since the election. When TIPS yields fall it can be a sign of risk aversion. Interestingly, the decline in TIPS yields has also corresponded with a decline in the US dollar. USD/JPY and TIPS yields have a particularly strong correlation, at more than 90%, so as TIPS yields fall the yen tends to rise, which is another sign of risk aversion.
It is also worth noting that the Federal Reserve has voiced concern about the President's economic plans and said that uncertainty around future fiscal and economic policy is one of the biggest risks facing the US economy.
While Trump has been greeted with caution by the bond and FX markets, the equity market has exploded in euphoria since Trump won the election. His promises to cut corporation tax and reduce financial market regulation have been a key driver of strength in stock markets, particularly in the financial sector, but, in fairness, equities look strong across the board. Even tech stocks, which could be hit hard by the border adjustment tax (see more below) have enjoyed a substantial rally in recent months.
Assessing the chance of a market sell-off on the back of this speech:
Many analysts and economists have been predicting a market collapse in recent weeks, saying that US stocks have become too expensive, or that volatility is too low. We have urged caution about jumping on this bandwagon; a study by Bank of America found that historically, stock markets tend to rise by 15% in the last six months of a bull market. Thus, picking the top of the market is not easy.
We believe that two things could trigger a sell off on the back of his address to Congress:
1, A misstep from Trump, for example, goading and deriding the opposition rather than using his speech to put the meat on the bones of his economic policy.
2, Criticism from members of Congress after the speech, which may suggest that he won't be able to get his economic agenda put into action.
We believe that the first point is a low probability but high-risk event. Another scenario to consider would be a sell off on the back of excessive detail from Trump, for example on his controversial border tax plan. This pledges to tax imports while exempting exports, and could be the first step to a protectionist trade policy, which we believe would be bad news for financial markets. However, the President is not renowned for being a details guy, so this scenario seems unlikely.
Stopping this rally mid-flow could be harder than it looks
Stock markets have been willing to give President Trump the benefit of the doubt, and have reached fresh record highs even after a tumultuous first month in office. We doubt that the markets will put their animal spirits back in the cage so quickly. If Trump can deliver a text book address to Congress that isn't too controversial, then US equity markets could still push higher, after all, Trump can't physically push through tax and spend legislation, for that he needs the support of Congress. So, until we know how Congress feels about his plans, which could take some months, then US equities may continue to break into fresh record territory as markets once again give President Trump the benefit of time to deliver on his economic plans. At this stage, we would give this outcome a 60% probability.
Indices and corporations that could be impacted by the Trump legislation:
While it will be up to Congress to actually enact Trump's economic plans, we think that it is worth taking a look at companies, sectors and indices that could be impacted by his policies.
1, Border Adjustment Tax:
This may be bad news for cut-price retailers who are big importers. Already Target and Best Buy have spoken out about this potential tax. In contrast, those in favour include Boeing and some of the US pharma companies, who could get an edge on foreign competition who may need to increase their prices to combat the effect of a US border tax. Overall, this tax could be interpreted as protectionist, and in our view this is not good for US markets. If it features heavily on Trump's agenda then we could see a risk off tone to financial markets at the beginning of March, and we would expect US indices to turn lower.
2, Corporation tax cut
Expectations of a cut in the US corporation tax rate have been one of the key drivers of this equity market rally. The markets are probably looking for something in the region of a cut to 20%, down from 35% currently. Markets may rally further if it looks like taxes could be cut by a larger amount, while they could falter if it looks like Trump would settle for a smaller tax cut in order to pass his tax plan through Congress.
3, Fiscal Spending:
A sizeable infrastructure fund could be good news for US building and services companies, including Caterpillar, Dow Chemical, GE, Honeywell, Emerson Electric, Du Pont etc. The size of a potential infrastructure-spending plan remains vague at this stage. We could see big gains for these stocks if a truly tremendous programme is confirmed on Tuesday night.
4, Financial regulation:
US Banking stocks, the S&P 500 and even foreign banks with a large US presence, such as Barclays, could do well if Trump stands firm in his commitment to cutting financial regulation. This is one area of policy that we think Trump can get passed by a Republican Congress with little opposition, and we expect him to try and fast-track this through before Congressional elections next year. Signs of a firm commitment to shaking up the US financial regulation system could be greeted by even more strength in US banking stocks.
Conclusion:
Overall, the markets have been eagerly awaiting this speech, and there is a lot resting on it. If Trump can deliver a textbook speech, that avoids controversy and aims to build cohesion with Congress then the stock market rally may continue, however, the bond and FX markets have been less generous to Trump in recent weeks. Falling bond yields and a declining dollar are both signs of fatigue with the Trump trade and concern that the President may not be able to deliver on his ambitious economic programme. President Trump's big trip to Congress on 28th February is definitely one event that market watchers should not miss.
 
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